How you can make a million bucks in ASX shares

Although millionaires are substantially more common now than they were in past decades, $1 million dollars still makes a good target for young and old investors alike.

After all, that kind of money should earn you between $20,000 and $50,000 (interest and dividends) a year for the rest of your life, and, if you live conservatively, effectively frees you from the ‘rat race’.

The intriguing thing is, making a million dollars is easier than it sounds, at least on paper. The below figures are before tax and any management fees you might pay, but let’s take a look:

Starting funds of plus $x per month growing at turns into in
$10,000 nothing 10%p.a. $1,078,266 47 years
$10,000 nothing 9%p.a. $676,411 47 years
$10,000 add $100 extra/month 10%p.a. $1,057,431 39 years
$10,000 add $100 extra/month 9%p.a. $756,971 39 years
$25,000 nothing 10%p.a. $1,100,071 38 years
$25,000 nothing 9%p.a. $754,545 38 years
$25,000 add $100 extra/month 10%p.a. $1,081,162 34 years
$25,000 add $100 extra/month 9%p.a. $794,941 34 years

Readers looking to play around with figures for themselves can find a variety of calculators at the Australian Securities and Investment Commission’s MoneySmart website.

In short, $10,000 invested today will turn into a million bucks in around 47 years – with no extra money added to it – if you can achieve a growth rate of 10% per annum on average over that time.

Achieving such a return can be difficult, but is eminently doable. Readers looking for more hands-off investment options can check out Listed Investment Companies (LICs) like WAM Capital Limited (ASX: WAM), and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), which have grown at more than 15% per annum on average since the late 1990s.

Alternatively, Exchange Traded Funds (ETFs) are another way to gain more passive exposure, with the ISGLCOSTP CDI 1:1 (ASX: IXI) – also known as the iShares Global Consumer Staples ETF – having returned around 9.5% per annum since inception in 2009.

By comparison, the ALL ORDINARIES (INDEXASX: ^AXAO) (ASX: XAO) index has returned around 7% per annum before dividends in the past decade.

There are several key takeaways for readers from the above figures.

  • Performance matters: even a 1% difference in performance, or 1% higher fees on your superannuation or managed funds can cost you oodles of money – up to $400,000 in the examples above – over several decades
  • Saving regularly makes a huge difference: just $100 extra per month can knock years off the total time to get to $1 million. Of course your $100 a month won’t earn 10% per annum until you can invest it, so take these figures with a grain of salt.
  • Time in the market is MUCH more important than your starting funds: Starting with $25,000 gets you to $1 million 10 years faster than $10,000, but it still takes 37 years. The sooner you start, the better.

While everyone’s financial situation differs, saving $10,000 or $25,000 over several years is within the reach of most, which means the primary consideration then is to achieve the performance you need to drive your investments towards that magic $1 million dollar mark.

That’s where The Motley Fool comes in, with all four of its established services beating the All Ordinaries index since inception – and for a fraction of the cost of superannuation or a managed fund. Read on to find out more!

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of iShares Global Consumer Staples ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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